Price Of Care

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Ron Murray had been having strange symptoms for weeks: chest pains, difficulty breathing, tingling sensations in his legs, arms and scalp.

He didn’t want to overreact, but didn’t want to chance it, either. Though it was New Year’s Eve, Murray decided to take his doctor’s advice and go to the emergency room, just in case.

A slew of tests showed no signs of a serious heart condition. Convinced it was just stress from work, the 57-year-old Redondo Beach resident went home the next day and felt better – that is, until he got the itemized hospital bill: $33,884, not including four separate physicians’ bills that totaled about $2,600.

"Talk about stress," Murray said jokingly. "I thought I was having another heart attack when I saw that."

As medical costs soar, and hospitals charge more and recoup less for their services, consumer advocates worry that patients – particularly the increasing numbers of underinsured – are getting caught in the middle, stuck with confusing medical bills they can’t possibly pay.

"We don’t have any kind of planning, oversight or rationalization to pricing," said Jerry Flanagan, health policy director for Santa Monica-based Consumer Watchdog. "As doctors, hospitals and insurance companies are warring, patients wind up paying more."

Industry officials, meanwhile, fear that more hospitals and clinics will close or cut services as the economy worsens. At the same time, the state and federal government are slashing public assistance programs that reimburse hospitals and care for the poor and unemployed.

California hospitals lost $11 billion last year because of nonpayment of medical bills, said Jim Lott, executive director of the Southern California Hospital Association. More than half of the hospitals in Los Angeles County are operating in the red, he said.

"The cost of providing health care is extremely expensive," he said.

Costs have soared partly because of profound medical advances and new drugs, an aging population that requires more care, and new state laws requiring hospitals to upgrade their infrastructure and hire more personnel, administrators say. This has contributed to skyrocketing prices for everything from cotton balls to antibiotics.

Inflation in the medical industry is expected to continue to climb by double-digit figures for the decade, analysts say. Health care spending in the United States is now at $2.5 trillion.

The pricing system is extremely complex. The way in which hospitals arrive at prices for hundreds of items, drugs and services seems almost arbitrary, with hospitals in some cases varying by tens of thousands of dollars in what they charge, according to state data.

Murray’s case is a good example. His arrival fee at the Providence Little Company of Mary Medical Center Torrance emergency room was $1,616, and that’s without any tests or care. Three CT scans cost $12,909, a cardiac stress test was $4,313 and lab work was $3,839.

The hospital, however, received only a few thousand dollars for all of those services, according to Murray’s paperwork. His share was $2,196, though he has requested a more detailed audit from the hospital, while his insurance company paid just a few hundred dollars.

The rest is absorbed by the hospital. Though administrators couldn’t comment on Murray’s specific case, they say that scenario is not unusual.

Roughly 92 to 95 percent of the work performed at Little Company is predetermined by contracts with private insurers, or dictated by government sources such as Medi-Cal and Medicare, said Michael Hunn, the hospital’s chief executive officer.

"Hospitals are doing everything they can right now to maintain access to care and manage our costs," Hunn said. "We run on a very thin margin."

In the last quarter of 2008, Little Company of Mary’s profit margin was 3.6 percent, according to the Office of Statewide Health Planning and Development. Torrance Memorial Medical Center, also a nonprofit, reported a 3.54 percent profit margin during the same period.

Though thin by Wall Street standards, both those margins would be considered healthy in the current climate of hospital management, Lott said.

"If they don’t find a way to make up for losses, they either cut services or go out of business," he said, adding that 11 hospitals have closed in Los Angeles County over the last six years.

Any profits reaped are reinvested back into the facility, with some hospitals socking money away for seismic upgrades mandated by the state, or purchasing new technology that costs a staggering amount of money. Just one MRI machine costs about $2 million, Hunn said, not including hundreds of thousands of dollars spent each year to maintain it.

Hospitals also are losing more money from the state and federal government, which accounts for about one-third of their income. Medicare pays about 87 cents on the dollar, and Medi-Cal pays 67 cents on the dollar, according to the hospital trade association.

Last month, the state announced it will follow through with another 10 percent cut to hospital reimbursement rates through Medi-Cal because of California’s soaring budget deficit.

Hospitals must make up for those losses by negotiating good contracts with private insurance companies, which often wind up paying more for medical services. A 2005 study by CalPERS, the state retirement system, found that these payers doled out a total of $18 billion for services that cost hospitals $13 billion to provide.

Hospitals that aren’t part of large chains or parent companies, however, have less negotiating power than others. Those with power could "potentially only deal with insurance companies that are willing to pay certain amounts," said Dylan Roby, a UCLA professor with the Center for Health Policy Research.

The people who can get crushed under this tug of war with hospitals, the government and private insurers are those who don’t qualify for state and federal assistance, don’t have private insurance, or don’t have enough insurance.

"These are the people with no negotiating power," Roby said.

These are the people – an estimated 6.7 million in California don’t have insurance alone – who are shocked when they see a huge hospital bill.

Even those with insurance are vulnerable. A recent study conducted by Harvard Medical School found that roughly 75 percent of people who filed for bankruptcy because of medical bills, in fact, had health insurance.

Murray, a real estate agent, certainly didn’t plan on paying a roughly $3,000 medical tab, including doctors’ bills.

"You think if you have insurance, everything will be covered," he said. "I guess it doesn’t work that way."

Patients can do little about the rates their private insurance companies negotiate with hospitals or, in many cases, which companies their employers choose to contract with. But they may be able to do something when it comes to high hospital bills.

Both Hunn and Doug Klebe, chief financial officer at Torrance Memorial, urged patients to work with financial counselors at the hospital.

"We are willing to discount significantly from our published charges, but patients need to call and work with us," Klebe said.

All hospitals are required to have a "fair pricing policy," and all provide so-called charity care for the extremely poor and indigent. Unless patients contact the hospital and find out what they are eligible for, their bills may wind up being sold to a collections agency as a last resort, administrators say.

"That’s not what we want to do," Hunn said. "We’re not here to make money. We need to cover our costs, but we’re here to provide the best care possible for the community."

Until something catastrophic happens, patients usually don’t realize how high costs are, or how bad their insurance might be, said Lisa Norris, director of ClaimCare, a Torrance agency that helps people through the medical billing process.

"The hospital is really put between a rock and hard place," she said. "They’re fighting with the payers, who are trying to pay as little as possible. The patients really end up at the bottom of the pile. Things have gotten so difficult for them."

In the end, Murray doesn’t regret taking initiative and seeking care. If it was between a heart attack and a high bill, he’d take the latter, he said.

"I’ll pay it," he said, "I don’t really have a choice… You’ve got to take care of health."

Consumer Watchdog
Consumer Watchdog
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